27 August 1987 Income Tax Severed Letter 5-3514 - [Regulation 1100(l)(ta) and Class 29 assets]

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

C. Tremblay (613) 957-2139

Aug 27 1987

Dear Sirs:

Re: Regulation 1100(l)(ta) and Class 29 assets

This is in reply to your letter wherein you requested we confirm your interpretation of paragraph 1100(l)(ta) and subsection 1100(2.2) of the Income Tax Regulations (the "Regulations") as they apply to the determination of capital cost allowance available to the partnership in respect of Class 29 assets in the following situation.

All terms used herein that are defined in the Income Tax Act have the meaning given in such definition unless otherwise indicated, and all references herein to sections or components thereof are references to the Act unless otherwise indicated.

1. X Co. is a taxable Canadian corporation resident in Canada. Its year end is September 30. Y Co. is a taxable Canadian corporation resident in Canada. Its year end is June 28. Y Co. is the wholly owned subsidiary of X Co.

2. Z Co. is a taxable Canadian corporation resident in Canada. Z Co. deals at arm's length with each of X Co. and Y Co.

3. Z Co. and Y Co. are the only partners in a Canadian partnership which carries on business in Canada. The year end of the partnership is June 30.

4. X Co. transfers "Class 29" property to Y Co. under section 85 on June 30, 1987. The property was originally acquired by X Co. from arm's length parties, at fair market value, and prior to June 20, 1986. The original cost of the property was $20,000,000. The UCC of the class at the time of the transfer was $8,000,000. The fair market value of the assets transferred was in excess of $20,000,000. The elected amount under paragraph 85(l)(a) was $8,000,000.

5. Subsequent to the transfer described above, but on June 30, 1987, Y Co. transfers the Class 29 property, which it acquired from X Co., to the partnership. For tax purposes this transfer is in accordance with subsection 97(2). The elected amount in respect of the transfer is $8,000,000. Y Co. acquires no additional Class 29 assets during its June 28, 1988 year.

6. During the period July 1, 1987 to June 30, 1988 the partnership acquired additional Class 29 assets at a cost of $2,000,000. There were no dispositions of Class 29 assets by the partnership.

We confirm your understanding that:

a) the Class 29 property is deemed to be designated property in accordance with Regulation 1100(2.2)(j). Regulation 1100(2.2)(g) applies to the partnership because Regulation 1100(2.2)(f) is applicable to Y Co.,

b) for the purposes of Regulation 1100(1)(ta)(i)(A) the Class 29 property was acquired by the partnership in a "specified transaction", and

c) the maximum capital cost allowance which the partnership may claim in respect of its 1988 taxation year is computed as follows:

1100(l)(ta) An amount not exceeding the aggregate of

(i) the aggregate of

        (A) the lesser of

            (I)  50% of cost of
                 designated property  $10,000,000
                                      ===========
            (II) UCC in respect of
                 designated property  $ 8,000,000 $8,000,000
                                      ===========

        (B) 25% of the lesser of

            (I)  UCC not including
                 designated property  $ 2,000,000
                                      ===========

            (II) capital cost of non
                 designated property
                 acquired in year     $ 2,000,000    500,000
                                      ===========
                                                  $8,000,000
                                                  ----------
   (ii) the lesser of

        (A) UCC less cost of property
            acquired in year               $NIL
                                           ====

        (B) an amount equal to the
            aggregate of

            (I)  50% of property acquired
                 in the preceding year     $NIL

            (II) excess of clause (A) over
                 certain amounts            NIL
                                           $NIL        -
                                            ====  __________

   Available CCA                                  $8,500,000
                                                  ==========

The existing rules, which apply to exempt property acquired on a rollover basis from the application of the half-year capital cost allowance convention are expected to change under the proposed White Paper of June 18, 1987, if passed in its present form. For acquisitions after June 17, 1987, these existing rules will apply only to non-arm's length transactions and not to property acquired on a rollover basis.

These comments represent our opinion of the law as it applies generally. As explained in paragraph 24 of Information Circular 70-6R dated December 18, 1978 this opinion is not a ruling and accordingly it is not binding on Revenue Canada Taxation.

We trust the above comments are of assistance.

Yours truly,

A. GLEN HOANLEY

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch